Whitney Tilson the public hedge fund face behind the controversy currently sinking Lumber Liquidators Lumber Liquidators has only made paper gains of about $1.4 million off of his high profile bet against the company.
Tilson appeared on the recent 60 Minutes television news program that accused Lumber Liquidators of selling laminate flooring made in China that contained formaldehyde levels that surpassed California health standards. I ve seen hundreds of companies do all sorts of bad things to get their stock prices up Tilson said on the progam that aired on Sunday. But this has got to be the worst.
Tilson says that his Kase Capital hedge funds are short 44 676 shares of Lumber Liquidators. He initially started betting against the hard wood flooring retailer in October 2013 when its shares were trading for $102.69. Tilson first publicly disclosed his short position against Lumber Liquidators at a hedge fund conference in November 2013 but at the time he was not focused on the formaldehyde issue.
Tilson received a tip about Lumber Liquidators using tainted laminate from China after he publicly announced his short campaign. He investigated the issue in 2014 and increased his hedge funds bet against the company shorting its shares when they traded as low as $56. He says he finished building his short position in October 2014 and that his average cost is $70 per share.
Shares of Lumber Liquidators have plunged by more than 40% since it first emerged last week that 60 Minutes had prepared a report on the company. The sell off accelerated on Monday following the 60 Minutes report and the stock closed at $38.83.
It was in October 2014 that Tilson reached out to 60 Minutes a program he worked with when it reported on the 2008 housing crisis. Tilson says he introduced the China formaldehyde issue to 60 Minutes and that he committed to the news program that he would no longer trade in Lumber Liquidators stock while 60 Minutes worked on its report. Tilson claims he has not covered a single share of his short bet against Lumber Liquidators.
Tilson s Kase Capital oversees three hedge funds that manage some $90 million and he only allocated 3% of their portfolio to the Lumber Liquidators short position making his gains relatively small even though the stock has tanked. Tilson says that in hindsight he should have built a larger short position. I didn t know 60 Minutes would do the story they were interested but sometimes these stories kind of fizzle says Tilson.
For Tilson it means that the Lumber Liquidators short will help his returns if it continues to gio his way but not make his year. It s material for me but small in the grand scheme of things says Tilson. If it goes to 0 I will have a 15% year instead of a 12% year.
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